SK Securities Raises Target Price for LIG Defense and Aerospace to 1.3 Million Won

SK Securities maintained a "buy" rating for LIG Defense and Aerospace on August 10, raising its target price from 1.15 million won to 1.3 million won, a 13% increase. This represents a potential upside of 75.4% compared to the previous closing price of 741,000 won.

SK Securities analyzed that LIG Defense and Aerospace is expanding its production capacity in response to a global shortage of interceptor missiles, which is increasing expectations for future export volumes.

Han Seung-han, a researcher at SK Securities, stated, "The capacity expansion amid the global interceptor missile shortage is expected to advance export contract negotiations."

In the second quarter, LIG Defense and Aerospace reported consolidated revenue of 1.11 trillion won, a 17.4% increase from the same period last year. Operating profit rose by 29.6% to 105.7 billion won, aligning with market expectations of 110.5 billion won. The increase in profit was attributed to a growing export share and overall growth without any one-time factors.

The operating profit margin (OPM) for domestic operations remained stable at around 9-10%, similar to the previous quarter, while the research and development sector maintained its break-even point. Reflecting the first-half results, the company raised its annual OPM guidance from 7% to 8%.

Sales of the Cheongung system in the UAE reached approximately 99 billion won in the second quarter. Although this was a decrease from the previous quarter due to early delivery volumes and accessory contracts, SK Securities anticipates a recovery to around 120 billion won in the second half. Consequently, annual sales of the Cheongung system are expected to exceed 500 billion won.

Ghost Robotics recorded an operating loss of 12 billion won in the second quarter, leading to expectations of an annual deficit. However, the company is expected to reach break-even next year, indicating potential for improved profitability as losses decrease.

SK Securities particularly highlighted the expansion of production capacity. With increased demand for air defense weapons in the Middle East due to the Iran conflict, interest in the Cheongung-II system from Southeast Asian countries such as Malaysia, Indonesia, and the Philippines is also rising. Additionally, there are prospects for entering the European market based on a memorandum of understanding (MOU) with Germany's Rheinmetall for a joint venture.

Han noted, "The capacity expansion at the Gumi and Gimcheon factories is not just a proactive investment but also implies progress in export contract negotiations and visibility of volumes."

As a result, SK Securities forecasts that from 2028 to 2029, LIG Defense and Aerospace will experience qualitative growth with simultaneous increases in quantity and price. They believe that the current stock price level sufficiently alleviates valuation burdens and maintain their top-pick recommendation for the defense sector.